Can I Claim AIA on Solar Panels? UK Tax Treatment 2026
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60-second answer
Yes — solar panels qualify for the Annual Investment Allowance (AIA). Solar PV systems are classified as “plant and machinery” under the Capital Allowances Act 2001 and qualify for AIA at 100% in year 1 of installation. The AIA cap is £1 million per accounting period — so the first £1m of solar PV capex is fully deductible against corporation tax in the year of install.
How AIA works for a solar PV install
If your company spends £500,000 on a 500 kW factory solar PV system in financial year 2026/27:
- The full £500,000 is deducted from your taxable profit in 2026/27 (assuming you have at least £500k of profit to deduct against)
- At the 25% main corporation tax rate, that’s a £125,000 cash tax saving in year 1
- The system enters your books at £0 net tax-written-down value
- If you sell or scrap the system later, sale proceeds are taxable as a balancing charge
AIA vs full expensing — key distinction
Solar panels do NOT qualify for full expensing (the new permanent 100% first-year allowance for “main pool” assets introduced in Spring Budget 2023). Solar PV is classified as a “special rate pool” asset (alongside long-life and integral features) and full expensing only applies to main-pool assets. The correct route for solar PV is AIA, which delivers the same 100% first-year deduction up to the £1m cap.
Above £1m — the 50% First Year Allowance
If your solar capex exceeds the £1m AIA cap (e.g. a 2 MW install at £1.4m), the excess qualifies for the 50% First Year Allowance (50% FYA) on special rate pool assets — which was made permanent in Autumn Budget 2023. So a £1.4m install would get: £1m at 100% AIA + £400k at 50% FYA + £200k at 6% writing down allowance per year thereafter. Effective post-tax cost ~£1.05m on a £1.4m install.
Asset finance and PPAs — tax treatment
If you finance the system via an operating lease or PPA, the system is owned by the third party — you don’t claim AIA. Instead, the kWh you buy from the system are an operating expense, fully deductible. If you finance via a hire purchase / lease-to-own structure, the system is treated as your asset for tax purposes from day 1, so AIA does apply.
How to claim AIA on your solar install
AIA is claimed via the company’s annual corporation tax return (CT600) for the accounting period in which the asset was first brought into use. Your accountant handles this routinely — we provide an AIA-eligible cost breakdown in the project handover pack so they can claim accurately. Most clients see the cash tax saving land within 9–15 months of installation, depending on tax-payment timing.
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